Nike Stock Is Running Too Fast – Beat the Bell

Editor’s note: We’re pleased to bring you the first installment of “Beat the Bell,” a daily column in which Serge Berger scours the headlines and brings you a technical trade based on the latest news.

[1]While most of Monday’s focus on Wall Street was primarily around the impending partial U.S. government shutdown with an eye on quarter-end, plenty of stock action was happening under the surface. Among the movers was athletic apparel designer Nike (NKE[2]), which is still reacting to last week’s earnings announcement as investors adjust or initiate positions in the stock.

Nike stock jumped almost 5% on Friday after the 8-cents-per-share earnings beat was announced, which was also a 34% year-over-year increase. On top of 8% year-over-year sales growth, the company also painted a fairly rosy outlook.

As I often say, though, a security’s first reaction to news often ends up being the wrong move as cooler heads prevail. In the case of Nike, its stock on Monday gapped down at the open. While Nike stock was only off $1.00 on the day, or 1.38%, the downside move was a clear statement that the Friday intraday highs were a little too much, too soon.

Through the lens of the 12-month chart below, Nike’s rally last Friday simply bumped the stock into the upper end of its uptrending channel (red parallels). Nike stock has continually proved that it doesn’t allow price action to get too hot before settling into mean-reversion moves lower, and with Monday’s selling it now looks like mean-reversion may be the stock’s theme for the coming weeks.

Mean-reversion doesn’t necessarily mean Nike has to move all the way down to the lower end of its trading channel, but as a reference point, note that the lower end is also supported by its rising 100 day simple moving average.

The closer-up daily chart of Nike stock presents Monday’s gap-down and reversal with more clarity. With the hindsight benefit of Monday’s selling, traders can now mark Friday’s jump in the stock as an exhaustion rally and use the intraday highs near $75.20 as the line in the sand. The stock remains about 3.00% above last Thursday’s close, and this remaining gap now stands a good chance of being “filled” or “retraced.” A filling of last Friday’s gap would get the stock toward the $70.30 level, which as can be seen on the chart below also coincides with the stock’s eight-day simple moving average (blue line).

All in all, given the combo of last Friday’s rally, followed by Monday’s selling, Nike here is not a stock I am looking to chase higher in the near-term. Some resting here looks to be in order before the climb higher can resume with better odds.

Serge Berger is the head trader and investment strategist for The Steady Trader[3]. Sign up for hisfree Weekly Market Outlook Video here[4]. As of this writing, he did not hold a position in any of the aforementioned securities.